Quick Recap: The Fed kept rates on hold last night as widely expected. That meant there was no impediment to a continued stock market rally after Shanghai bolted into the close giving European traders a solid platform to move higher. UK stocks grasped the nettle best, but across the continent and then in the US. In the end, with the exception of Milan, all the major indices were higher.
That’s good news again for the local market with futures indicating another solid day on the ASX200.
On forex markets, the impact of the FOMC decision was that the US dollar rallied a little. That has knocked the Aussie back under 73 cents, euro under 1.10 and yen back toward 124. Bonds in the US, and Australia, saw rates rise a little as reaction to the Fed.
Perhaps the biggest news overnight was the big rally on oil markets after US stocks dropped more than expected.
The overnight scoreboard (7.33am AEST):
- Dow Jones +0.69% to 17,751
- Nasdaqup +0.44% to 5,111
- S&P 500 +0.73% to 2,108
- London (FTSE 100) +1.16% to 6,631
- Frankfurt (DAX) +0.34% to 11,211
- Tokyo (Nikkei) -0.1% TO 20,302
- Shanghai (composite) +3.47% TO 3,790
- Hong Kong (Hang Seng) +0.47% TO 24,619
- ASX Futures overnight (SPI September) +33 TO 5,606
- AUDUSD: 0.7290
- EURUSD: 1.0979
- USDJPY: 123.95
- GBPUSD: 1.5595
- USDCAD: 1.2953
- Crude: $48.89
- Gold: $1,096
- Dalian Iron Ore (September): 406
– Now the news. The FOMC was the highlight overnight. Westpac’s New Zealand based strategist Imre Speizer summed it up in the following manner.
The FOMC kept policy unchanged and repeated the economy continues to expand “moderately.” There were no surprises in the language or signals regarding tightening in September. However, the tone was slightly more upbeat than in June, the Fed sounding more confident on the labour market, now noting that that, “a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year” versus, “a range of labor market indicators suggests that underutilization of labor resources diminished somewhat”. The housing market continued to improve, though business fixed investment and net exports remained soft. The inflation outlook remained the same with the FOMC still looking for a move toward the 2% target. Overall, the slight upgrade to the labour market view keeps the September meeting in play.
– On Wall Street, Commsec’s Craig James said in a note this morning that “All 10 major S&P 500 sectors were higher, with the telecom sector leading the gains, up 1.4%…After the close Facebook reported better than expected results however the headwinds of the stronger US dollar on international earnings resulted in the stock down 2% in after-hours trade.” He also highlighted that earnings reports in Europe had been positive.
– That means that the local market is likely to have another solid day today. Shanghai rallied hard and late in the day yesterday and while its movements are still somewhat wild, the inability of the bears to gain traction in their battle with authorities helps local sentiment at the margin. Also helping sentiment is the continued rally in iron ore, apparently partly fueled by a rush to current production in China before a shut down for a military parade. So the miners, who rallied again in London trade, are the big drivers of the rally.
– For the first time four sessions, Shanghai managed to close higher yesterday. Most of the buying was done toward the close and David Scutt reported that the benchmark “rallied hard in the back-half of the session, finishing the day up 3.47% at 3790.25. The surge, the largest in percentage terms since July 17, took the 12-month gain for the index to 73.6%. All of ten industry sectors rose for the session with industrials, materials, utilities, healthcare and technology all logging gains in excess of 4%. Financials and energy, the relative laggards, rose less than 0.5%.” What will the bears do today? My guess is that the aggressive rally into the close will have spooked them.
– On forex markets, as highlighted above, the US dollar found a little, and it was only a little, strength on the back of the subtle change in language and the fact that September, the next meeting, is now live. That strength may continue for a little while given a number of currencies have had failed breaks against the US dollar, or run into overhead resistance, this week. In the end though it is going to be GDP tonight for the US and the massive data dump next week which will determine if the Aussie, amongst others, can grind higher again.
– On commodities, oil was higher. Craig James wrote “as a sharper than expected drop in US crude stockpiles supported buying. US crude inventories fell by 4.2 million barrels last week, against expectations of a 184,000 barrel drop. Brent crude rose by US8c or 0.2% to US$53.38 a barrel while US Nymex crude rose by US81c or 1.7% to US$48.79 a barrel.”
The question for traders is whether the low is in.
It might well be given a subtle turn in commodity sentiment this week. Base metals were up again last night with copper back at $2.41 a pound. Gold is stuck in doldrums but iron ore ripped higher in overnight US futures trade with September 63% Fe CFR China up $2.38 a tonne to $51.38 – almost 5%.
– On the data front today, we get industrial production in Japan, export prices and building permits in Australia. In Germany tonight, we get the unemployment rate along with the CPI data and EU business and consumer sentiment indices. Then it’s the big one – US GDP.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Virgin beat expectations with its trading update yesterday, unveiling an underlying loss of $39.6m for the June quarter. This puts it on track for a return to profit next financial year. Like Qantas, it’s benefiting from reduced costs including oil. However, demand is sluggish. The number of domestic passengers carried by Virgin Domestic was down 1.6% compared to the same quarter last year.
While Qantas broke above its May high yesterday, Virgin’s share price has drifted lower over the past week. This might provide an opportunity. The dashed blue lines on the chart below represent the sort of trajectory that might play out of the technical analysis play book. A pull back to the 61.8% or 78.6% Fibonacci retracements for the latest minor uptrend might represent a buying opportunity at around 43-44c.
According to the script, that could be followed by a rally to 61.8% of the bigger downtrend at around 50c which certainly looks possible from a valuation point of view.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC